Blount International, Inc.

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Blount International, Inc.

4520 Executive Park Drive
Montgomery, Alabama 36116-1602
U.S.A.
Telephone: (334) 244-4000
Fax: (334) 271-8150
Web site: http://www.blount.com/

Public Company
Incorporated: 1949 as Blount Brothers Construction
Company
Employees: 3,200
Sales: $468.7 million (2001)
Stock Exchanges: New York
Ticker Symbol: BLT
NAIC: 332213 Saw Blade and Handsaw Manufacturing; 33251 Hardware Manufacturing; 332991 Ball and Roller Bearing Manufacturing; 332992 Small Arms Ammunition Manufacturing; 332993 Ammunition (Except Small Arms) Manufacturing; 333120 Construction Machinery Manufacturing; 333613 Mechanical Power Transmission Equipment Manufacturing; 421460 Ophthalmic Goods Wholesalers; 551112 Offices of Other Holding Companies

Blount International, Inc. is a diversified manufacturing and distributing business. The company’s three main businesses include outdoor products, industrial and power equipment, and sporting equipment. Its product line ranges from specialty riding mowers to log loading machinery.

Blount’s manufacturing facilities are spread throughout the United States, Canada, and Brazil. Its distribution network is active in more than 100 countries. The company makes chain saw accessories and concrete cutting system through its Oregon Cutting Systems Division, which accounts for three-quarters of Outdoor Products sales. It produces lawn mowers through Dixon Industries, Inc. The Industrial and Power Equipment segment supplies timber harvesting equipment, industrial tractors, and components for the gear industry.

Origins

By the time Winton Blount, a former B-29 pilot, and his brother Houston returned to their hometown of Union Springs, Alabama, after World War II, the family sand and gravel business had almost completely deteriorated. Winton and Houston’s father had died during the war, and along with him the driving force behind the company. The two brothers, however, were determined to rebuild it, and within a few weeks they had purchased U.S. Army surplus equipment to use for sand and gravel projects. Winton, ever on the lookout for opportunities and bargains, decided rather impulsively to purchase four D-7 Caterpillar tractors a short time later. When Houston asked his brother why he had purchased the tractor’s, Winton replied that they were going into the contracting business.

The first contracts the brothers landed were for constructing fish ponds in and around Union Springs. By the summer of 1946, the two siblings were doing subcontract work for the Alabama Highway. Although neither Winton nor Houston had any prior experience in constructing highways, they worked on numerous highways, roads, and bridges throughout Mississippi and Alabama during the late 1940s. Their first big break came in 1949 with a $1 million contract to build the superstructure for a viaduct in Birmingham, Alabama.

By 1951, the brothers had constructed their first building, followed shortly by a few gymnasiums. In the same year, the company, known as Blount Brothers Construction Company, procured a very lucrative contract to build a 500,000-square-foot plant used by Sperry to manufacture missile components for the U.S. Navy. In 1952, the company won a contract that significantly altered the way it conducted business. A highly technical project, the contract was for building segments of a wind tunnel for the U.S. Air Force at the Arnold Engineering Development Center, near Tullahoma, Tennessee. Winton and Houston soon discovered that highly technical projects were not only more profitable, but that there was less competition for such contracts. As a result, they started to concentrate on complex construction-type projects, some of which were one-of-a-kind buildings. Soon after the U.S. Air Force project, the company constructed an atomic energy facility at Oak Ridge, Tennessee, and took on other increasingly complex projects.

By the middle of the decade, the Blount brothers were not only deeply involved in the construction industry, but also in the materials business, including gravel and sand, as well as asphalt and concrete pipe production. At this time, Houston Blount decided that he wanted to devote his attention exclusively to the materials operation. Thus, the two brothers organized all their plants in the materials business and formed the Vulcan Materials Company. Houston resigned from Blount Brothers Construction to become president and chief executive officer of the new firm.

Explosive Growth in the 1950s and 1960s

Under Winton’s strong leadership, Blount Brothers Construction continued to grow. The company was awarded major contracts by the U.S. Air Force to build Bomark and Nike nuclear missile bases in California, Massachusetts, Michigan, and Minnesota. In 1958, Blount Brothers constructed the first intercontinental missile facility in Wyoming. It was the first time the firm was asked to build a site under the “principle of concurrency,” meaning that the design and testing of the missile was carried out as the facility itself was being designed and constructed; each testing of the missile resulted in a change of building specifications on the job site. Shortly afterwards, the company was contracted by the U.S. Navy to build an “indoor ocean” so that ship models could be tested under the most stringent conditions. The company also constructed the launching facilities at Cape Canaveral for the Mercury, Gemini, and Apollo space programs, as well as the world’s biggest rocket test silo. Other projects during the late 1950s involved the construction of nuclear reactors, a cyclotron, the Atlanta airport, and numerous dams and river locks.

By 1962, Blount Brothers was growing so rapidly that it passed the $100 million mark for construction contracts. In the same year, the construction industry’s trade publication, Engineering News-Record, ranked Blount as the thirty-third largest construction company in the United States. However, although Blount benefited from the federal government’s practice of awarding lump-sum contracts to the lowest bidder that could provide high-quality work, another government policy of using public work funds to regulate the economy began to create extreme cycles within the construction industry as a whole. As a consequence of this latter policy, management at Blount decided to decrease its reliance on government contracts and seek more work in the private or corporate sector.

In order to capture a significant share of the contracts in private industry, the company started a business development department and opened satellite offices in Boston, Chicago, and Houston. Initially, Blount was forced to accept small jobs, but these soon grew into larger and larger contracts. In 1967, management decided to embark upon an aggressive acquisitions program to accelerate its entry into private sector construction. The first acquisition was the Benjamin F. Shaw Company, a leader in the manufacture and installation of piping for chemical, paper, and power plants, as well as for oil refineries.

Company President Turns Postmaster in 1968

Winton Blount resigned from his position as president and chairperson in 1968 to accept a nomination as Postmaster General of the United States in Richard Nixon’s new cabinet. During his leave of absence, Austin Paddock, the administrative vice-president of United States Steel Company, was chosen to replace Winton. When Winton Blount left the company, he insisted that it no longer bid for government contracts while he was postmaster. Since over 50 percent of the company’s construction contracts were still with the government, this meant the elimination of a huge amount of business at one stroke; at the same time, it also meant that the firm would devote itself to getting all of its contracts from private industry.

Company Perspectives:

We want to create within the Blount organization a place where people can and will want to come and devote their lives toward building a more successful enterprise. To do so, we seek to create a climate where individuals can develop to their maximum potential. It is our belief that if people are set free to express themselves to the fullest, their accomplishments will be far beyond their dreams, and they will not only contribute to the growth of the company, but will also be more useful citizens and contribute to the larger society. We hold a deep and abiding faith in the American Enterprise System. We understand and have tolerance for a wide range of individual interpretations of this system, but we brook no adherence to any other way of life. We believe in a person’s responsibility and duty as a citizen to look beyond the office, and we encourage participation in civic, cultural, religious, and political affairs of our country. We do not Seek Conformity; We do Seek Participation. We believe we have no greater responsibility to the American Enterprise System than to ensure that our business operates at a reasonable profit. There is no way to provide opportunity for growth or job security other than to make profits. To accomplish this on a continuing basis, we believe it is necessary to grow. We believe growth is necessary to provide opportunities on an ever increasing scale for our people to make their mark. Therefore, we are dedicated to growth—growth as a company, growth as an organization, and growth as individuals. This is what we stand for. This is what we are about.

To compensate for the elimination of federal contracts, Blount continued its acquisition program. The most important acquisition during this time involved the purchase of J.P. Burroughs & Sons, an agribusiness firm based in Saginaw, Michigan. Buying Burroughs, a public company listed on the American Stock Exchange, allowed privately owned Blount to acquire all of the Burroughs shareholders. This move had been anticipated for years by management and led to Blount’s listing on the American Stock Exchange in July 1972. In addition, the acquisition introduced the company, now known as Blount, Inc., to the field of agribusiness, which involved the manufacture of seed cleaners, roller mills, grain dryers, and bucket elevators.

Growing Agribusiness in the 1970s

When Winton Blount returned to the company in 1974 and assumed his former position as president and chairperson, he decided that it was time to determine the future direction of the firm. Taking advice from both Blount management and his brother Houston, Winton decided that the company would not become a conglomerate with operations in a variety of unrelated fields but rather focus solely on the construction and agribusiness industries. Since the company was already well established in the construction industry, Winton immediately turned his attention to expanding its agribusiness operations. In 1976, Blount, Inc. purchased Modern Farm Systems, a manufacturer and distributor of grain bins and metal farm buildings. With facilities in Iowa, Indiana, Mississippi, Nebraska, and Pennsylvania, the acquisition enabled Blount, Inc. to quickly set up a comprehensive system to process, handle, and store grain.

In order to develop its agribusiness operations, Blount Inc. purchased York Foundry & Engine Work in 1977. Located in York, Nebraska, the company manufactured and distributed such items as bucket elevators and belt conveyors used to handle feeds, fertilizers, grains, and various other bulk materials. A further acquisition during the same year involved Redex Industries of Elm Creek, Nebraska, another manufacturer of materials handling equipment. The third purchase of that year was Mix-Mill Manufacturing Company of Bluffton, Indiana, a maker of different types of farm equipment used to process feed for cattle, poultry, and hogs. These acquisitions, in combination with increased grain production during the mid-1970s, led to record sales for the company; by 1979, Blount’s agribusiness operations made up 45 percent of its operating income.

While Blount’s agribusiness revenues were beginning to rise, management decided to expand its construction operations overseas due to a decline in the U.S. market. Offices were opened in the Middle East, and within a short period Blount had secured major contracts with Saudi Arabia and Iran. Two of the largest contracts were a $150 million agreement for construction in Tabuk, Saudi Arabia, and a collaborative effort with the French firm Bouygues involving a $3.5 billion contract for constructing the University of Riyadh in Saudi Arabia. On the domestic front, Blount purchased Fred J. Early Jr. Company, a prominent contracting firm located in San Francisco, in order to extend its operations west of the Rocky Mountains. Additional acquisitions such as the R.S. Noonan Company, a process engineering firm, and Hoad Engineers, which provided consulting engineering services, gave Blount the opportunity to enter the utility, paper, chemical, cement, and petrochemical fields. In a risky undertaking, for $61 million the company’s management also decided to acquire the Washington Steel Company, a manufacturer of specialty steels. This purchase added a third major product line to Blount’s well-established construction and agribusiness operations.

Changing the Mix in the 1980s

In 1980, Blount reported revenues of just over $554 million; by the end of fiscal 1982 revenues had increased dramatically to $788 million. The cash flow from the construction project in Saudi Arabia was a boon for the company, as was the performance of Washington Steel and the success of its agribusiness expansion into such countries as Mexico, West Germany, China, Venezuela, Nigeria, and Egypt. Revenues for 1984 were a hefty $847 million and earnings a record $24.3 million. Yet at the pinnacle of its success, trouble started to brew. Blount’s foreign construction contracts began to decrease, and the farm machine business market suddenly tumbled into a worldwide depression. Anticipating these difficulties, Winton Blount began to implement a diversification strategy. Slowly beginning to sell off all the company’s agribusiness holdings, in 1985 he purchased Omark Industries, a chainsaw and materials handling equipment manufacturer for the pulpwood and timber industry and a leading producer of gun care equipment. In addition, Blount also bought W&E Environmental Systems, a Swiss-based resources recovery firm specializing in turning garbage into energy. These acquisitions, and the continued success of its projects in Saudi Arabia, helped push revenues past the $1 billion mark in 1986.

Key Dates:

1946:: Blount Brothers go into the contracting business.
1951:: The Blounts begin to land more complex military construction projects.
1968:: Co-founder Winton Blount is named U.S. Postmaster General.
1971:: Blount becomes a Delaware corporation.
1972:: Blount, Inc. goes public after acquiring J.P. Burroughs & Sons.
1985:: Blount acquires Omark Industries of Portland, Oregon.
1994:: Blount exits the construction business to focus on manufacturing.
1997:: Federal Cartridge is acquired.
1999:: Lehman Brothers acquires Blount in a leveraged buy-out (LBO).
2001:: Federal Cartridge sold to Alliant Techsystems (ATK).

In 1987, although he remained the board’s chairperson, Winton Blount decided to decrease the time he spent in managing the day-to-day operations of the company. He promoted his son, Winton Blount III, to the position of vice-chairperson and gave him the primary responsibility of supervising the company’s construction business. Having previously been the head of Blount’s international construction operations, Winton Blount III seemed a natural choice. Yet from the very beginning of the younger Blount’s tenure, the company’s performance began to suffer. Washington Steel Corporation was sold off, in spite of its turning a profit during one of the most difficult periods in the steel industry. A $100 million, 80 megawatts cogeneration project located in Pennsylvania landed in court following a dispute between Blount and Schuykill Energy Resources. Problems with the company’s handling of a $150 million office complex for AT&T in Chicago also gave rise to litigation. Other construction projects in which the company lost control or entered into contract terms that were unfavorable led to declining revenues and profitability. The younger Blount was asked to vacate his position as vice-chairperson, and his father returned to turn the company around. By the end of fiscal 1990, however, revenues had dropped from over $1 billion to $683 million; revenues for the construction operations alone declined from over $600 million to $348 million.

The early 1990s were a period of disruption and realignment for the company. William R. Van Sant, president and chief executive officer of Blount from December 1990 to October 1992, suddenly resigned, creating a large gap in management. Van Sant had helped the company shift its focus to a more diversified mixture of manufacturing equipment and construction operations. John M. Panettiere, a management expert with considerable experience in the auto industry, was appointed president and chief operating officer, and he immediately began to help Winton Blount iron out the company’s problems. One of their first decisions was to sell the resource recovery operation and not seek any additional contracts in the waste-to-energy business. Their second decision involved a stronger commitment to manufacturing, including outdoor products, such as saw chains and specialty riding mowers; industrial and power equipment, such as industrial tractors and equipment for timber harvesting and loading; and sporting equipment, such as small arms ammunition, gun scopes, and gun care equipment. The company’s overall realignment worked. In 1993, revenues increased to over $691 million from a 1992 figure of $637 million.

Exiting Construction in 1994

In early 1994, management decided to sell almost all of its construction business to Montgomery’s Caddell Construction Company, headed by one of Blount’s former employees. This decision opened the way for the company to eliminate the substantial operating losses its construction business experienced in the late 1980s and early 1990s. Although revenues dropped sharply as a result of this move, Blount was able to focus entirely on its three remaining divisions of outdoor products, sports equipment, and industrial equipment. Finally rid of the lingering effects of a worldwide slowdown in the construction industry, Blount’s prospects for the future appeared much brighter.

Blount announced agreements to acquire Simmons Outdoor in late 1995, and Frederick Manufacturing and Orbex in late 1996. Frederick was a Kansas City maker of lawn mower accessories. Orbex made a variety of outdoor products and Simmons, sporting optics. These acquisitions were soon consolidated into the new Sporting Equipment Group.

Blount ended 1996 with 4,400 employees and earnings of $55.2 million on revenues of $649.3 million. Blount’s Sporting Equipment Group accounted for $147.1 million of sales in 1996, producing operating income of $19.8 million. Group sales were doubled by the $112 million purchase of Federal Cartridge Company from St. Paul, Minnesota-based Pentair, Inc. in November 1997. Blount picked up the ammo manufacturer as part of a strategy to round out its sporting equipment brand offerings, which then included Simmons, RCBS, CCI, Speer, Ram-Line, Weaver, and Orbex. Pentair was unloading the munitions business to gain money for acquisitions related to its core businesses: electrical and electronic enclosures, professional tools and equipment, and water products. Operating profit at Federal Cartridge had fallen from $20 million to less than $2 million in 1995—the results of a stockpiling effort the year before among gun users fearful of new gun control regulations. Federal Cartridge employed 900 workers and had sales of $130 million in 1995.

Blount’s long-term prospects prompted the Fort Worth, Texas-based Bass group to acquire a 5.3 percent stake in the company in the summer of 1996. This was soon raised to 8.2 percent. In April 1999, the company agreed to be acquired by a unit of Lehman Brothers Holdings Inc. for $1.16 billion. Blount issued $825 million in debt, including $325 million in junk bonds, to finance the leveraged buyout. Lehman and Blount’s existing management owned 90 percent of shares after the transaction, with existing shareholders holding the rest. The Blount family owned 63 percent of shares before the deal. Blount executives had discussed selling the company to a number of bidders, but few other than Lehman were interested acquiring all of Blount’s operations.

There was speculation that Lehman, as a financial buyer, would divide Blount’s operations, and this was soon realized. In December 2001, Minneapolis-based aerospace and defense company Alliant Techsystems Inc. (ATK) bought Blount’s Sporting Equipment Group for $235 million in stock. The “top prize” of the deal was Federal Cartridge. This operation of 1,700 employees made small-caliber ammunition and was a leader in the law enforcement market. ATK already dominated the U.S. military munitions market. Also included in the sale were Estate Cartridge, Inc., a maker of sporting shotgun shells acquired in October 2000, Simmons Outdoor Corporation, and other assets of the Sporting Equipment Division.

Blount acquired Fabtek Inc., a $21 million-a-year timber harvesting equipment business, in September 2000, making it part of the Industrial and Power Equipment Group. Blount bought Windsor Forestry Tools, Inc. from Snap-On Incorporated in October 2000. Windsor made cutting chain and guide bars for chain saws and timber harvesting equipment.

Harold E. Layman, president and COO since 2000, succeeded John M. Panettiere as CEO in April 2001. The company had a net loss of $43.6 million on sales of $469 million for the year.